Inflation has increased 260% in the last two years.
With the hyperinflation we are in, you must raise prices. On May 11th, 2022, the U.S. Labor Department published the annual inflation rate for the United States. For the previous 12 months, ending April 2022, the annual rate is 8.3%. (Between 2012 and 2020 it never rose above 2.3%.)
Even if you are only looking to break even, you’ll need to raise your prices by around 8%. But even that might not be enough. Not only is the cost of goods rising, but we are receiving reports from MSPs across the country about premiums on labor between 18% and 20%. MSPs are losing top staff to companies offering to double their employee’s salaries. In speaking with service leadership groups with best-in-class MSPs, we discovered that across the board, every MSP had raised prices by 20% in the last eight months.
To help you feel confident in raising your prices too, we spoke with three MSPs to find out how they charge premium prices for their MSP services.
Michael Glasser, Founder of Glasser Tech, started his business out of his house in 2008 and has charged premium prices from day one. He also doesn’t use contracts. His billable rate is $195 to $225 per hour. With profit margins, nearly four times that of the average MSP, Michael’s business was acquired by Frontline Managed Services in 2021.
Will Nobles, Founder of Vector Choice Technology Solutions, used to believe his market wouldn’t tolerate premium prices. But when he raised his prices in 2018, his company took off and has grown at a blinding pace, increasing a million dollars year over year. He charges between $100 per computer/per month and $250 per computer/per month, plus projects.
Mike Bazar, Founder of Bazar Solutions, Inc., has been growing at a rapid pace, even through this economic downturn. While he charges 47% more than the competitors in his market, he says there is room to charge more. “We have solid pricing, but we are not charging an astronomically high rate,” he says.
Here are seven things these MSPs recommend you do to charge premium prices:
1. Don’t undervalue your services. Make sure you are profitable. Never discount. And know your worth. Even if you are only getting started, serving a certain market segment, or don’t have all the resources in-house, it doesn’t mean you can’t charge premium prices. “You don’t need to have a cybersecurity person on staff to charge premium prices,” Nobles said. “You can partner with a company that has that expertise to build out your package.”
Glasser does not use an “all-you-can-eat model” where everything is included. Instead, he offers an entry-level managed services plan with two requirements: advanced endpoint protection and system recovery backup system. Everything else is a billable event. “Robin Robins told me, ‘You can charge anything you like, as long as you’re backing it up with the service,’” Glasser said. “The value you provide, if you’re giving excellent service, you can certainly charge for it as long as you back it up with what you promise.”
2. Control your costs. Bazar uses an “all-you-can-eat model.” The key to maintaining profitability with this model is to control your costs so you can keep your margins where you need them to be. “Look at: What is your labor budget? What are the major projects you want to do this year that are included in your ‘all-you-can-eat’ quote?” Bazar said. “We look at what isn’t urgent and could be done further down the road. A lot of people approach it that they are going to fix every single thing right away, especially engineers who go down a rabbit hole and fix every little nook and cranny. They can spend 20 or 40 hours on a project when it should be 10 or 12. Internally monitor those costs to make sure you don’t have runaway costs.”
3. Get rid of head trash around money. In 2018, Nobles stood up at a Technology Marketing Toolkit meeting and said there was no way he could get premium prices in his Atlanta market. “An MSP from Atlanta stood up and said, ‘Will, I was charging and getting those prices four years ago.’ I went home, raised my prices, and closed even more business once I began charging premium prices.”
4. Start with profit first. You must know your numbers first. “One thing that helped my profits came from what I learned through the Greg Crabtree program within Technology Marketing Toolkit,” Glasser said. “That’s where I learned that you must pay attention to the revenues per employee and be efficient with your revenues, which is called the labor efficiency ratio (LER). I learned if you’re efficient in your labor and utilize it correctly, your profits will soar.”
5. Establish a niche. Pick a niche and stick with it. The more you specialize in solving a big problem, the more you can charge. 95% of Glasser’s revenues come from the legal and law firm community. When starting out, Michael took the time to learn the software attorneys use inside and out. After becoming an expert on the software, he studied the big problems attorneys were trying to solve. Understanding that lawyers are concerned about billable hours, Glasser pitches how they will use technology to help clients have more billable hours. Then he backs up his expertise with awesome service, which allows him to charge a premium.
Nobles is considered a trusted cybersecurity expert in his community. He gets out in front of the public a lot. “I do a lot of webinars, post pictures of myself with celebrities, and make appearances on TV talking about cybersecurity,” Nobles said.
6. Hire A-Players. Nothing drains your resources faster than a bad hire. Glasser uses DISC assessments and personality tests when hiring people. “You can’t go on intuition,” Glasser said. “You’ve got to use a little bit of technology with it. Yes, you want to assess their technical expertise, but you also want to assess them as people.”
If you’re not making what you want per hour, you are probably doing too much yourself and need to hire or outsource someone to help you. “You must delegate low-value work,” Bazar said. “I was constantly getting dragged back into the day-to-day minutia, so I had to delegate being the primary tech.”
7. Focus on relationships with your clients and build trust. “Go above and beyond,” Glasser said. “No question or detail is too small. Answer every question, even if it’s something small and only requires a half-hour of work. Take the call, because you never know where that can lead to. Also, make sure you are maintaining the relationship with people and don’t hand that off entirely to your team.”
Even if you’ve been doing business a certain way for a long time, you can always start charging premium pricing for new customers. Specialize, stick to your guns, don’t give stuff away for free, and just start. When you do, you’ll be receiving premium prices in no time.